By Liz Hoffman and Tom McGinty
Three days after the presidential election, James Gorman did
something he hadn't done before in his six years as chief executive
of Morgan Stanley: He sold stock.
Mr. Gorman exercised options on 200,000 Morgan Stanley shares
and sold them at $37.70 each, filings show. He sold another 100,000
shares later in November as the stock surged on the back of Donald
Trump's victory, and late last week, he disposed of a further
285,000. Altogether, the Morgan Stanley boss realized a profit of
at least $8.4 million, after taking into account the cost of
exercising the underlying options.
Since Mr. Trump's election victory on Nov. 8, investors have
pushed financial stocks to multiyear highs on expectations of
lighter regulation, lower taxes and pro-growth economic policies.
The KBW Nasdaq Bank Index is up nearly 20% since Nov. 8, about
three times the gains notched by the broader market.
Executives at some of the biggest Wall Street banks have sold
nearly $100 million worth of stock in that time, according to a
Wall Street Journal review of securities filings. That is more in
that same period in any year since 2006.
Executives have sold another $363 million worth of stock to
cover the cost of exercising options and taxes, the filings show.
That is nearly twice the amount sold for that purpose than in the
year leading up to the election.
An added bonus: Some options that were about to expire worthless
became valuable due to the postelection run-up. At Goldman Sachs
Group Inc., for instance, the postelection bounce turned at least
half a billion dollars worth of stock options into winners -- just
days before some were set to expire.
Further selling may be in store. Bank employees typically can't
sell shares or exercise options in the run-up to earnings reports.
The big banks finished posting earnings last week, meaning
employees will now in most cases be free to sell.
Those sales won't be as apparent, though. Banks only have to
disclose trades for a handful of top executives, although
rank-and-file employees are paid largely in stock and options.
Share sales by corporate executives are often viewed by
investors as a sign that insiders could be growing wary of
valuations or be less confident in an increase in share prices.
While that may be the case among some bank executives, the sales
also follow a multiyear period in which they largely held on to
moribund stock.
Some executives even doubled down during the depths of the
postcrisis trough. Chief Executive James Dimon bought 500,000 J.P.
Morgan shares in 2012 in the wake of the so-called London Whale
trading blowup. Mr. Dimon bought another 500,000 shares in early
2016 as bank stocks were sliding. Mr. Gorman bought $2 million in
Morgan Stanley shares in 2011, when the stock was at less than half
its current price.
Now, with share prices and valuations rising, executives are
acting. At Morgan Stanley, whose shares have risen 24% since the
election, executives who have to report transactions sold more than
$50 million of stock between Nov. 9 and Nov. 30, filings show. Many
were the fruit of options granted to executives years ago when
shares were trading at half their current value.
Those options allowed their holders to buy shares at big
discounts to current prices. Last week, Mr. Gorman exercised
options, granted in 2013, on 285,000 shares that allowed him to buy
them at $23 apiece, according to filings. He sold the shares for
$42.30 each, the filings show.
For options to be worth exercising, the stock must be trading
above the so-called strike price, the level at which an
option-holder has the right to buy it.
Before the election, Mr. Gorman had only sold shares to cover
the cost of exercising his options, holding on to much of his stock
in the process. After the latest sales, Mr. Gorman still owns 1.3
million shares, worth about $56 million. He is required by the bank
to continue holding 75% of all share awards as long as he is
CEO.
When he bought 100,000 shares in 2011, at about $20.62 apiece,
Mr. Gorman planned to sell them if and when the share price
doubled, which it did just after the election, according to a
person familiar with his thinking.
Morgan Stanley shares recently were trading at about $42,
slightly below their postelection peak.
J.P. Morgan executives who have to report the transactions
collectively sold $20.5 million worth of shares since the election,
filings show. At Goldman Sachs, executives at a similar level let
go of nearly $25 million worth of their firm's stock.
Some of the selling at these banks has been from executives who
have announced their retirements, including Morgan Stanley Chief
Operating Officer Jim Rosenthal and Goldman Europe head Michael
Sherwood. Other trades are pursuant to prearranged plans that
schedule trades for certain times or price triggers.
And some have occurred as once-worthless options gained value.
In late 2006, Goldman CEO Lloyd Blankfein and other top executives
were granted options with a strike price of $199.84 that would
expire 10 years later. By November 2016, with the expiration date
approaching, Goldman shares were nowhere near $199.84. The week
after the election, though, Goldman shares jumped above $210. The
bank's shares now trade around $231.
Six current Goldman Sachs executives, as well as board member
and ex-finance chief David Viniar, exercised 983,000 options,
filings show. That represented 192.5 million shares that would
likely have been worthless without the boost after Trump's
election.
Another chunk of options set to expire later this year also have
been pushed "into the money." All told, since the election, Goldman
executives became eligible to buy at least $500 million worth of
stock at below-market prices after a 33% rise in the share
price.
There is one potential downside to the bank-stock rally. Firms
recently awarded 2016 compensation based on stock that is suddenly
higher in value, meaning employees received fewer shares or options
that have higher exercise prices.
Write to Liz Hoffman at liz.hoffman@wsj.com and Tom McGinty at
tom.mcginty@wsj.com
(END) Dow Jones Newswires
January 23, 2017 13:36 ET (18:36 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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